Capital II, Chapter 13 - Part 1

The Time of Production 

“Working time is always production time, that is to say, time during which capital is held fast in the sphere of production. But vice versa, not all time during which capital is engaged in the process of production is necessarily working time.” (p 242)

Take forestry. The working period consists of that time required to clear the land to be planted, to prepare it, to plant seedlings, to erect fencing etc. It also consists of the time required to cut down mature trees, to transport them to the saw-mill, strip them, and cut them. But, between these two labour processes – that in respect of the working period constitute one continuous process – there could be an interval of 100 years! During that time, labour may not be needed at all, or only occasionally, and in small amounts. During that time, however, the production process continues, because the trees grow as part of a natural, organic process.

Consequently, the production-time here, is considerably longer than the working period. Its not just natural processes that this applies to. It applies to various chemical processes too. Wine needs time to ferment, pottery to dry etc. 

“But the product is not finished, not ready, hence not fit to be converted from the form of productive into that of commodity-capital until the production period is completed. Consequently the length of the turnover period increases in proportion to the length of the production time that does not consist of working time.” (p 243)

If the production time is not fixed, as a result of natural processes, the turnover time can be reduced by shortening the production-time. An example is the introduction of chemical bleaching.

“The most magnificent illustration of an artificial abbreviation of the time of production taken up exclusively with natural processes is furnished by the history of iron manufacture, more especially the conversion of pig iron into steel during the last 100 years, from the puddling process discovered about 1780 to the modern Bessemer process and the latest methods introduced since. The time of production has been brought down tremendously, but the investment of fixed capital has increased in proportion. 

A peculiar illustration of the divergence of the production time from the working time is furnished by the American manufacture of shoe-lasts. In this case a considerable portion of the unproductive costs arises from having to hold the timber at least eighteen months before it is dry enough to work, so as to prevent subsequent warping. During this time the wood does not pass through any other labour-process. The period of turnover of the invested capital is therefore not determined solely by the time required for the manufacture of the lasts but also by the time during which it lies unproductive in the shape of drying wood. It stays 18 months in the process of production before it can enter into the labour-process proper. This example shows at the same time that the times of turnover of different parts of the aggregate circulating capital may differ in consequence of conditions which do not arise within the sphere of circulation but owe their origin to the production process.” (p 243)

Back To Chapter 12

Forward To Part 2

Labour

Labour is the essence of Value. If Value is like light, then labour is the photon. Just as more photons means more light, so more labour means more value. But, just as the photon is not the source of light, so labour is not the source of value. The source of light, the place where the photons originate is not the same as the photon itself. The place where labour originates is not the same as the labour itself. So, we have sun light, candle light, star light etc. These are concrete forms of light, and in the same way we have concrete forms of labour, such as the labour of the tailor, carpenter, blacksmith and so on. Labour in the abstract is the essence of value, but these concrete forms of labour give it its particular character, or use value.

In talking of Labour here, what is meant is free human labour. The labour undertaken by beasts of burden, or the work done by machines is not free human labour. The work they do creates no new value, but only transfers a portion of their own value to the new product. But, for the same reason the labour performed by slave labour creates no new value either. The slave is no different than any other beast of burden, and the labour they perform also only transfers a portion of their own value to the end product. As Marx puts it,

“... in the relations of slavery and serfdom…The slave stands in no relation whatsoever to the objective conditions of his labour; rather, labour itself, both in the form of the slave and in that of the serf, is classified as an inorganic condition of production along with other natural beings, such as cattle, as an accessory of the earth.” (Grundrisse p 489) 

Labour is the essence of value, and the natural measure of its quantity is time. Value is measured by the quantity of labour-time. Some use values arise naturally, and have required no labour for their production. As a result these use values have no value. But, all use values that are the product of human labour have value. These use values, as distinct from those that are not the result of human labour, are products. Every product has an individual value equal to the labour-time used in its production. Every society seeks to reduce this value, i.e. to reduce the labour-time required for the production of these products, because in this way it can increase its wealth by increasing the number of products.  This is a fundamental element of the Law of Value.

As societies begin to trade one with another - as Marx says this first arises with one nomadic tribe exchanging products with another, often in wedding ceremonies – these products themselves are brought into a social relation with each other, such that the value of each product is measured against the value of the product with which it is exchanged. The more these exchanges are developed into actual trade, the products are transformed into commodities, and the value of the product in its social relation with other products becomes visibly stamped upon the commodity as its exchange value.

What each participant exchanges is then not commodities, but equal amounts of labour-time. The apparent exchange of commodities, thereby creates the impression that it is the commodity, which has innate value because of some quality it possesses. This is commodity-fetishism.

The more trade develops, the more the measurement of value has to be done accurately. As Marx says, individual producers who are still close to the production process of a small range of products know how much labour-time is required on average to produce any item. In a study of the Guatemala Indians of Panajachel Professor Sol Tax tells us that exchanges and equivalences are strictly calculated and a woman who could not read or write was able to state within a penny the exact cost of production of a carpet on which she had worked the whole of one day. Sol Tax “Penny Capitalism” (pp 18, 15, 80). The corporations of Antiquity and in those of China and Byzantium and in the European and Arab Middle Ages fixed rules, known to all, laid down alike the labour time to be devoted to the making of each object, the length of apprenticeship, its cost and the equivalent normally to be asked for each commodity. Georges Espinas “Les Origines du Capitalisme” (pp 118, 140-2)

Even where commodities are produced by a large number of individual producers these commodities are sold by a smaller number of merchants so that the social value becomes more accurately measured via the exchange of large masses of commodities.

In the same way that sunlight is more intense than candlelight, but an amount of sunlight can be expressed as so much candle-power, so the same duration of different types of concrete labour, may represent different amounts of abstract labour. Or put another way, light can be measured in candles, and labour can be measured in terms of some basic unit of simple labour. The product of an hour of the concrete labour of a carpenter, may have the same value as the product of two hours concrete labour of a cotton spinner. This can only be determined in the market place by examining in what proportion the product of the one exchanges for the product of the other. Marx calls the basic unit of labour simple labour, whereas the concrete labour which represents a multiple of this simple labour, he calls complex labour. It stand in the same relation to simple labour as a yard stands to a foot, or a kilometre to a metre.

Labour, as the essence of value, has no value itself. That would be like saying a photon is equal to a photon. The statement, "the value of an hour of labour is equal to an hour of labour", is meaningless. It is only the products of labour that have value. When the phrase "price of labour" is used by economists, or in general vocabulary, , this is equally meaningless, therefore, because price is only value expressed in money terms. The price of labour is only the phenomenal form of the value of labour-power, a commodity sold by workers whose value like that of any other commodity is determined by its cost of production – here the cost of production of the worker themselves.

It was this confusion over the value of labour as opposed to the value of labour-power that caused Adam Smith, David Ricardo and their followers to end up in an unsolvable contradiction about the source of surplus value, a contradiction that it was left to Marx to resolve.

QE Chickens Start Roosting

Unless you watch the business channels, or read the financial press, you might not have been aware that over the last week there has been some panic in global markets. Not only have the US stock markets fallen every day for a week, sometimes by more than 1% per day, with other stock markets following suit, but there has been increasing fear that the emerging economies might go into a crisis. The currencies of many of the latter have fallen sharply, reminiscent of the Asian currency crisis of the late 1990's, and their central banks have held emergency meetings at midnight to sharply raise interest rates to protect those currencies, and guard against rising inflation fears. The cause of these panics is cited as being the introduction of “tapering” of QE by the US Federal Reserve. The real cause is not the tapering, but the QE itself, together with the changes in the Long Wave conjuncture I have set out elsewhere - Rates of Profit, Interest and Inflation. 

The effect of QE, is not to have reduced interest rates as generally proposed. Global interest rates have fallen since 1982, for the reason Marx sets out. High and rising rates and volumes of profit, produced a greater supply of potential money-capital, relative to the demand for money-capital. This greater relative supply then pushes down on money markets causing interest rates to fall. Money printing cannot have this effect, because it simply reduces the value of the money tokens printed, causing a relative rise in prices, which, in fact causes potential lenders to seek to protect themselves against such inflation by demanding higher not lower interest rates. QE, can increase the price of the bonds bought by the central bank, thereby reducing their yield, but this only causes yields to be higher than they would have been elsewhere, because money flows away from them towards where the state has provided a safe bet. The state cannot buy every bond, be the provider of printed money for every borrower without causing hyper-inflation. As Marx put it,

“The entire artificial system of forced expansion of the reproduction process cannot, of course, be remedied by having some bank, like the Bank of England, give to all the swindlers the deficient capital by means of its paper and having it buy up all the depreciated commodities at their old nominal values.”

“Incidentally, everything here appears distorted, since in this paper world, the real price and its real basis appear nowhere, but only bullion, metal coin, notes, bills of exchange, securities. Particularly in centres where the entire money business of the country is concentrated, like London, does this distortion become apparent; the entire process becomes incomprehensible; it is less so in centres of production.”

Capital III, Chapter 30

The difference here is that QE was not intended as a means of forced expansion of the reproduction process of productive-capital, but only as a means of bailing out the swindlers of financial capital. It was not intended to buy up depreciated commodities, but to buy up highly inflated financial assets, each time they began to be depreciated! In fact, the huge capital gains which were to be made from such speculation during this 30 year period, acted in many economies to divert potential money-capital away from productive use, where it could have been profitably employed. As a money-capitalist – and as Marx points out from the end of the 19^th century nearly all the big capitalists were really just money-capitalists who simply made their money available to the professional managers of their businesses - why, even if you could make 30% plus p.a. profit and rising from investing your money in productive-capital, would you do so, if you could buy technology shares in the 1990's, whose price was rising often by 70% p.a.???

During that same period, a lot of money-capital was invested in productive capacity in the Asian Tigers, but likewise, for the above reason, a lot also went into speculation in rapidly inflating property, until that crashed. The same thing happened when entry into the Eurozone made available large amounts of money, at lower interest rates than would otherwise have been the case, to countries like Greece, Spain, Portugal, Italy, Ireland and so on.

What QE did was not to reduce interest rates, but to devalue money, and thereby to prevent the nominal deflation of commodity prices, whose value was falling because massive rises in productivity reduced the labour-time required for their production, in addition to which vast new reserves of labour-power in China and other parts of the globe, where the value of labour-power was much lower, became employed to produce manufactured commodities using these same highly productive methods. In the process, this hugely increased volume of money tokens, together with the huge relative increase in the supply of money, itself resulting from the increased volume of surplus value, flooded in to buy up a restricted supply of fictional capital, fuelling massive bubbles in stocks, bonds, and property. Because, these financial assets provide the backbone of financial capital – the balance sheets of the banks, building societies, insurance companies etc. - and because this financial capital sits at the heart of capital markets, and therefore of the capitalist system, any bursting of those bubbles threatens the existence of those financial institutions and the functioning of the capitalist system, at least in the short run.

A look at what happened in Japan in the 1990's indicates that. As the financial bubble burst, the value of property and shares on the books of Japanese Banks collapsed by up to 90%. That undermined the capital base of those banks restricting their ability to lend, which in itself then has economic rather than purely financial consequences. It set in place the conditions for Japan to remain in deflation and the doldrums for more than 20 years.

For those economies that did not engage in the same kind of money printing that the US and UK did, the consequence, provided their economy had the potential for earnings, was that their currency appreciated. For two reasons this is anti-inflationary. Firstly, most globally traded commodities are denominated in dollars. So, if say the price of oil is $100 a barrel, and your currency appreciates against the dollar by 20%, then the price of a barrel of oil to you falls by 20%. So countries that needed to buy things like food, energy or even things such as capital equipment saw their prices fall often by significant amounts. By the same token, if you are a supplier of some strategic raw material, then the price you obtain for it in your own currency rises by 20%. That helps strengthen your currency further. In a period when the Spring Phase of the Long Wave cycle was causing primary product prices to rise sharply, this is significant for many emerging economies, a large part of whose income came from such commodities. But, the second anti-inflationary aspect of this is that as your currency rises in value, so the exchange value of other commodities denominated in it (their price) falls. It puts pressure on domestic producers to lower prices. In other words, a rising value of money acts as a monetary contraction, just as a monetary expansion acts to create a devaluation of money. In fact, the recent falls in inflation in the UK and EU, are a result of sharp rises in the value of the £ and € against the dollar. Both have risen by more than 10% in recent months. This will be reversed in coming months, as the underlying increases in commodity values, referred to in the post above, together with a strengthening of the dollar, as the US economy rebounds, will reverse those trends. A look at the rash of strikes in South African mines, the sharp rises in wages for workers in China and elsewhere indicate that the analysis I gave 7 years ago - Prepare To Dust Off The Sliding Scale – is correct.

But, as I pointed out a while ago - QE etc., whilst QE could act to resolve a credit crunch, it could not change the underlying insolvency of the banks and financial institutions, nor could it act to stimulate economic activity, because without sufficient demand, it was merely pushing on a string. The continuation of QE proved not only that point, but showed that continuing that policy was causing other contradictions to arise and intensify. That was containable so long as the economy was in the Spring Phase of the Long Wave boom, but as that conjuncture changes to the Summer Phase, it is not. Productivity gains begin to erode, innovation in new products also slows (the latest results from Apple shows this trend I have highlighted previously – Apple Also Confirms The Conjuncture.

Global interest rates have been rising for the last year, for the reasons set out in these previous analyses. The danger for the US Federal Reserve was that it would be behind the curve, and the markets would take matters into their own hands, causing the bond bubble to burst. Tapering is not the cause of rising interest rates, but a response to it. Just as QE did not reduce interest rates but reduced the value of the dollar, so tapering is not causing rising interest rates, but is causing the dollar to rise in value against all those emerging market currencies that benefited from it. Turkey's economy has grown spectacularly in the last few years, but its currency has now started to drop sharply against the dollar, forcing the central bank to hold an emergency meeting to raise official interest rates by more than 2.25 percentage points, to around 10%, a rise of more than 25%. Similar rises in official rates are likely across emerging markets.

The consequence of these higher official rates as well as of rising market rates will be that it will attract hot money flows as a means of defending the currency, but it will burst the asset bubbles that have developed in many of these economies. As well as the risk of contagion in global financial markets that entails, there are other risks to inflated asset prices in developed economies. That was highlighted in the recent heated debate between the Singapore Monetary Authorities and the business magazine Forbes as I pointed out recently – Is Singapore The Next Iceland?. Many of these Asian economies like Singapore and Hong Kong have highly inflated property markets reminiscent of the 1990's. A sharp rise in interest rates, and falling currencies are likely to burst it. But speculators from many of these countries have also been heavily involved in speculating in property in London and elsewhere. When they get their fingers burned its likely to have a similar effect on speculation in London property, as well as in property in parts of Europe, like Spain where the property bubble has not yet fully been deflated. According to the biggest estate agent in Spain, Idealista, prices there still have another 15% to fall. Some analysts believe that could be more like 50%. In the event of a renewed global financial crisis, the latter may still be an underestimate. That in turn will have huge consequences for the European banks that are essentially bust, but are given the semblance of life only by listing such property on their books at these inflated prices.

More worrying is the situation in China. The same processes that created this huge sea of liquidity have sent large amounts of money via the shadow banking system into a range of investments that are unsound. In fact, it was one of these - China Trust – that was partly the spark for the sell off in global markets in the last week. The immediate problem was addressed by a bail-out, but as Marx's quote above demonstrates, you cannot simply keep bailing out every bank, or every company that has such problems. In China there are many more instances of this kind of problem. Because China pegged its currency to the dollar, whenever the US printed money to lower the value of its currency, China had to do likewise. That is on top of a huge amount of actual money being created in its economy as a result of the growth of surplus value. With the US now tapering QE, the consequences of that are manifesting themselves via all the contradictions that money printing created.

The problems highlighted by the financial crisis of 2008 have not been addressed, QE has simply multiplied and magnified them. In store is a much bigger financial crisis than 2008. Whether it comes this week, this month, or this year, no once can say. The longer it is delayed, the worse it is likely to be.

Capital II, Chapter 12 - Part 5

Production that requires very prolonged working periods, and normally requires very large scale production, does not properly come under capitalist production until the era of the monopoly of private capitalist property has ended (“the expropriation of the expropriators” as Marx described it in Volume I). It is only when this monopoly of private capital gives way to socialised capital in the form of the Joint Stock Companies, that the resources become available for this scale of production.

“It goes without saying that whether the capital advanced in production belongs to him who uses it or does not has no effect on the velocity or time of turnover.” (p 238)

The more productivity rises, the more the working period is shortened. But, in general, along with this, to achieve the higher productivity, goes an increase in the amount of fixed capital, employed as machines etc. 

“On the other hand the working period in certain branches of production may be diminished by the mere extension of cooperation. The completion of a railway is expedited by setting afoot huge armies of labourers and thus tackling the job in many spots at once. The time of turnover is lessened in that case by an increase of the advanced capital. More means of production and more labour-power must be united under the command of the capitalist.” (p 239)

That in itself requires that whatever the total size of the available social capital, more of it is concentrated in single capitals, rather than being scattered throughout the economy.

“Inasmuch as credit promotes, accelerates and enhances the concentration of capital in one hand, it contributes to the shortening of the working period and thus of the turnover time.” (p 239)

For some products, no change in productivity can shorten the working period. Marx quotes, W. Walter Good,

“In regard to quicker returns, this term cannot be made to apply to corn crops, as one return only can be made per annum. In respect to stock, we will simply ask, how is the return of two- and three-year-old sheep, and four- and five-year-old oxen to be quickened.” (p 239) 

But, Marx says, the need to raise money to pay for rent and taxes then leads to livestock being slaughtered too early, “to the great detriment of agriculture.” (p 239)

In the end, that leads to higher meat prices. In more recent times, however, science has provided means of fattening cattle and other livestock more quickly. Larger, more capitalised farms are also able to deal with longer production times. For example, in Brazil new types of corn can now be cropped three times a year, where once only one main crop and a smaller secondary crop was possible.

“Naturally, it is impossible to deliver a five-year-old animal before the lapse of five years. But what is possible, within certain limits, is getting animals ready for their destination in less time by changing the way of treating them. This is precisely what Bakewell accomplished. Formerly English sheep, like the French as late as 1855, were not fit for the butcher until four or five years old. According to the Bakewell system, sheep may be fattened when only one year old and in every case have reached their full growth before the end of the second year. By careful selection, Bakewell, a Dishley Grange farmer, reduced the skeleton of sheep to the minimum required for their existence.” (p 241)

Finally, because all of these different methods of shortening the working period apply in all branches of industry, the relative differences between them may be unaffected or even grow wider.

Back To Part 4

Forward To Chapter 13

Back To Index

Capital II, Chapter 12 - Part 4

For the locomotive production then,

“The labour-power bought for a definite week is expended in the course of the same week and is materialised in the product. It must be paid for at the end of the week. And this investment of capital in labour-power is repeated every week during the three months; yet the expenditure of this part of the capital during the week does not enable the capitalist to settle for the purchase of the labour the following week. Every week additional capital must be expended to pay for labour-power, and, leaving aside the question of credit, the capitalist must be able to lay out wages for three months, even if he pays them only in weekly doses. It is the same with the other portion of circulating capital, the raw and auxiliary materials. One layer of labour after another is piled up on the product. It is not alone the value of the expended labour-power that is continually being transferred to the product during the labour-process, but also surplus-value. This product, however, is unfinished, it has not yet the form of a finished commodity, hence it cannot yet circulate. This applies likewise to the capital-value transferred in layers from the raw and auxiliary materials to the product.” (p 235)

The turnover time, however, is not just a function of the working period, or time of production, because products are not sold immediately after they are produced. The turnover time is the sum of the time of production and the time of circulation.

“At the less developed stages of capitalist production, undertakings requiring a long working period, and hence a large investment of capital for a long time, such as the building of roads, canals, etc., especially when they can be carried out only on a large scale, are either not carried out on a capitalist basis at all, but rather at communal or state expense (in earlier times generally by forced labour, so far as the labour-power was concerned). Or objects whose production requires a lengthy working period are fabricated only for the smallest part by recourse to the private means of the capitalist himself. For instance, in the building of a house, the private person for whom it is built makes a number of partial advance payments to the building contractor. He therefore actually pays for the house piecemeal, in proportion as the productive process progresses. But in the advanced capitalist era, when on the one hand huge capitals are concentrated in the hands of single individuals, while on the other the associated capitalist (joint-stock companies) appears side by side with the individual capitalist and a credit system has simultaneously been developed, a capitalist building contractor builds only in exceptional cases on the order of private individuals. His business nowadays is to build whole rows of houses and entire sections of cities for the market, just as it is the business of individual capitalists to build railways as contractors.” (p 237)

Marx describes the consequence of this for house building in London with reference to testimony from builders. Instead of building to order, they built on speculation for the market, using credit, so that they were leveraged up to fifty times their own resources.

“Then, if a crisis comes along and interrupts the payment of the advance instalments, the entire enterprise generally collapses. At best, the houses remain unfinished until better times arrive; at the worst they are sold at auction for half their cost.” (p 238)

Back To Part 3

Forward To Part 5

For A Political Revolution At The Co-op - Part 10

There is a similarity between all organisations big and small, whether it is a sports club, trade union, co-operative, or a society. But similarity does not mean they are the same. All of the former organisations exist within the last, each is conditioned by it, in a way that it is not conditioned by them. Marx criticises the Gotha Programme because,

“... instead of treating existing society (and this holds good for any future one) as the basis of the existing state (or of the future state in the case of future society), it treats the state rather as an independent entity that possesses its own intellectual, ethical, and libertarian bases.”

In a sentence this describes the problem of attempting to capture the state by a Political Revolution, as opposed to a Political Revolution flowing itself from the change in the class nature of the state, arising from a social revolution, which changes the underlying property and social relations. The Lassalleans believed that by securing control over the State, they would be free to utilise it to create Socialism. The same kind of view is put forward by the Fabians, and in a more dramatic manner by the Leninists. But, this is to treat the State as though it is an “independent entity”, something to be picked up and wielded like a club by its possessor, rather than as being what it is, something which itself is inextricably tied to and arises from the existing society.

Locke's Second Treatise on Government symbolises the point when
bourgeois ideas become dominant, yet that point when the state
 becomes a capitalist state, predates the Political Revolution that
gives direct control of the political regime to the bourgeoisie
by at least 150 years.

The feudal state does not exist as a feudal state, because feudalists seized control of it, any more than the capitalist state exists because capitalists seized it. These states exist because the economic reality of the society in which they exist, is based upon respectively feudal or capitalist forms of property and methods of production. The state exists as a feudal state or a capitalist state not because it is captured by feudalists or capitalists, but because the ideas it is led to defend, the ideas it is imbued with itself, are the dominant ideas of the society on which it is based, the ideas of the dominant social class, even if that class has not yet achieved outright control over the political regime itself, i.e. if the social revolution, which changes the class basis of the society and of the state has not yet been consummated via a Political Revolution.

In the Communist Manifesto, Marx and Engels
describe how, as the economic and social position
of the bourgeoisie develops within feudalism, the
bourgeoisie also develop their own state organs,
continually pushing forward their own political
position.

In fact, the idea that the State can be captured to be used in such a way is itself wholly at odds with Marx's theory of Historical Materialism. It is as though it were some kind of empty vessel into which different class content can be poured, modified so as to meet the other class's needs. But, of course, as Marx set out as far back as the Communist Manifesto, the revolutionary class does not capture the existing state at all. It develops its own class organs in opposition to the existing state as part of its own development and struggle against that state, over a long period of time. In the end, the existing state cannot be captured and utilised, but has to be smashed. As Marx says in “The Eighteenth Brumaire”, 

“ All revolutions perfected this machine instead of breaking it. The parties, which alternately contended for domination, regarded the possession of this huge state structure as the chief spoils of the victor. 

But under the absolute monarchy, during the first Revolution, and under Napoleon the bureaucracy was only the means of preparing the class rule of the bourgeoisie. Under the Restoration, under Louis Philippe, under the parliamentary republic, it was the instrument of the ruling class, however much it strove for power of its own.”

This indeed is the essence of Bonapartism. The Bonapartist state, whether it is that of Cromwell, Bonaparte, Hitler or Stalin, however much it attempts to obtain power for itself, however much, indeed, its actions appear to amount to attacks on the ruling class (remember Lenin's seemingly contradictory statement about the Russian workers needing trades unions to defend them against their own state?), cannot escape the need to operate within the constraints of the economic and social relations which dominate the society, and thereby, objectively, to fulfil the role of “instrument of the ruling class, however much it strove for power of its own.”

Even within long-established bourgeois societies this contradiction manifests itself. The Capitalist class requires its own bureaucracy to administer its property, be it in the form of executives appointed as managers of its corporations, or state bureaucrats appointed to fulfil the same functions within the national and local state. On the one hand, this bureaucracy is constrained to operate within the requirements of the needs of capital. In the 1940's, Hayek had picked up on the arguments put forward by renegades from Marxism, like James Burnham and Max Shachtman, symbolised in "The Managerial Revolution", that these new bureaucracies were becoming a new global, managerial or bureaucratic collectivist class.  In the 1960's, with Hayek installed at the London School of Economics, this argument becomes codified as the so called Post-Capitalist Thesis, propounded by others at the LSE such as Ralf Dahrendorf.  There followed prolonged debate in which these ideas were soundly defeated by Marxists like Robin Blackburn, who demonstrated with a large volume of data, and argument, (see for example, "The New Capitalism") the point that Marx makes above, that however powerful these elites became they were constrained objectively to act in the interests of the ruling social class, because have to pursue the interests of the dominant forms of property within the society.  See the discussions here.

In fact, although the most capitalistic of nations, the US, has the most highly paid executives, it also has a high number of those executives, as happened at TYCO, Enron etc., who “strive for power of their own”, and attempt to pursue their own interests – its been argued that one reason for the lack of investment, currently in the US, by companies with huge cash piles (currently estimated at nearly $3 trillion) , is that their executives have more incentive to use the cash to buy back shares, to boost the value of their own share options – they have to do so in the limits of the interests of capital (unless they act illegally), and moreover, the US tends to be harder than most other developed economies in punishing such executives when they overstep the bounds.

In other words, even a powerful and entrenched ruling class, must have at its disposal means by which it keeps that bureaucracy in place, up to and including the use of a political revolution to replace a corrupt bureaucracy where its actions stray too far. That the process for workers in trying to exert control over their own bureaucracy represents an even more difficult task, when that bureaucracy, and its own organisations exist within a society that is dominated by its class enemy, is even more clear. That is not just a problem that arose at the Co-op Bank, but exists within all of the Labour Movement, as I will examine in Part 11.

Back To Part 9

Forward To Part 11

Northern Soul Classics - Eddie's My Name - Eddie Holman

As well as the the chart success with "Hey There Lonely Girl", Eddie Holman has many Northern classics to his name.  This is one of the first I can remember buying back in the early 70's.

Capital II, Chapter 12 - Part 3

Marx introduces a new concept here. That is the “Working Period”. It is the labour-time required for the completion of a particular use value. So, a yard of linen might require 1 hour to produce, but a locomotive 6,000 hours. For the workers, in either case, 1 hour's labour is 1 hour's labour, separate from any other, but for the locomotive, the 6,000 hours constitute one continuous labour process, even though it has been spread over 12 weeks.

The working period for the yard of linen is one hour, and for the locomotive 6,000 hours.

“When we speak of a working-day we mean the length of working time during which the labourer must daily spend his labour-power, must work day by day. But when we speak of a working period we mean the number of connected working-days required in a certain branch of industry for the manufacture of a finished product. In this case the product of every working-day is but a partial one, which is further worked upon from day to day and only at the end of the longer or shorter working period receives its finished form, is a finished use-value.” (p 234)

One consequence is that the effects of interruptions in production due to crises etc., have very different effects on different industries. If production of yarn is stopped – because cotton, from the US slave states, is blockaded for instance – the result is that tomorrow's yarn production does not occur. However, if a shipbuilder cannot obtain steel, then it is not just that tomorrow's work has to cease. All of the previous work and materials have been wasted, because the ship can only be sold in its completed form. Even if the buyer agrees to wait, and if eventually steel is provided, in the intervening period, some of the existing work will have deteriorated.

The significance of the distinction between fixed and circulating capital is also brought out here. The turnover time of the capital is dependent upon the working period of the product. But, for fixed capital, as opposed to circulating capital, it transfers its value to the end product over several working periods.

“Whether a steam-engine transfers its value daily piecemeal to some yarn, the product of a discrete labour-process, or for three months to a locomotive, the product of a continuous act of production, is immaterial as far as laying out the capital required for the purchase of the steam-engine is concerned. In the one case its value flows back in small doses, for instance weekly, in the other case in larger quantities, for instance quarterly. But in either case the renewal of the steam-engine may take place only after twenty years. So long as every individual period within which the value of the steam-engine is returned piecemeal by the sale of the product is shorter than the lifetime of the engine itself, the latter continues to function in the process of production for several working periods.” (p 235)

If a machine lasts for ten years, it does not really matter whether the value of its wear and tear is returned in the sale of the product at the end of a week, month or year, because that capital-value is not required for another ten years. It only has to be advanced again when the machine is replaced.

But, that is not the case with the circulating capital. It is wholly consumed during the working-period, and has to be replaced in full. The longer the working period, the more circulating capital has to be advanced.

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Forward To Part 4

Capital II, Chapter 12 - Part 2

“The difference in the duration of the productive act must evidently give rise to a difference in the velocity of the turnover, if invested capitals are equal, in other words, must make a difference in the time for which a certain capital is advanced.” (p 233)

Compare the situation of the spinner and the locomotive manufacturer. Suppose both have the same organic composition of capital, and both can sell their output as soon as its completed. Suppose, the cotton spinner sells their output by the week, and the locomotive maker sells theirs after 12 weeks. Each week, they spend £1,000 on constant capital, and £1,000 on variable capital. There is a 100% rate of surplus value.

Week 1

Cotton Spinner: C 1000 + V 1000 + S 1000 = E 3000

Locomotive Maker: C 1000 + V 1000 + S 1000 = E 3000.

However, at the end of this week, the cotton spinner sells their output. From the proceeds they now have the capital to replace the productive capital consumed. The locomotive manufacturer does not. They have to cover the next week's capital advance from their own pocket or by borrowing from the bank. If we look at how much capital is actually advanced by each then at the end of week 2:

Week 2

Cotton Spinner: C 1000 + V 1000 + S 1000 = E 3000

Locomotive Manufacturer: C 2000 + V 2000 + S 2000 = E 6000

But, this output for the locomotive manufacturer still cannot be sold. The capital actually advanced by the cotton spinner remains £1,000 constant capital, and £1,000 variable capital, because each week it is reproduced out of the proceeds of the sale of yarn. But, the locomotive maker will have to advance additional capital each week. At the end of the 12 weeks, although the cotton spinner will have paid out £12,000 in constant capital, and £12,000 in variable capital, the same as the locomotive maker, they will only have had to advance £1,000 for each, because every week that capital has returned to them to be laid out once more.

The locomotive maker, however, each week, has had to dig into their own pocket to obtain additional capital. So, the real situation facing each is:

Cotton Spinner: £1,000 (Constant) + £1,000 (Variable) = £2,000 advanced, to produce £12,000 surplus value. Their rate of profit is 12,000/2,000 = 600%.

Locomotive Producer: £12,000 (Constant) + £12,000 (Variable) = £24,000 advanced to produce £12,000 surplus value. Their rate of profit is 12,000/24,000 = 50%.

“The expenditure of the one is made for one week, that of the other is the weekly expenditure multiplied by twelve. All other circumstances being assumed as equal, the one must have twelve times as much circulating capital at his disposal as the other.” (p 233)

Of course, the same relation applies whether we assume that the same amount of constant and variable capital is laid out or not. What is determinate is the rate of turnover.

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Forward To Part 3

Carney Hamstrung In H2

Its been said that Mark Carney has been very lucky in taking over at the BoE when he did. At the time of his appointment, the UK economy was not just in a double but a triple dip recession. The fact that, subsequent data from the ONS indicates that in reality it just technically escaped that description is neither here nor there; the fact is that the economy was very weak, and had been so since the Liberal-Tories undermined it in 2010. It was so weak that he seemed safe in offering to keep interest rates pinned to the floor for the foreseeable future, or at least until the unemployment rate fell below 7%, which at the time seemed to be the same thing. Yet, within months of taking over, the UK economy appears to be in a completely different position. It is apparently growing more strongly than many other European economies, and even than the US. The unemployment rate is coming closer by the day to the 7% limit, which poses Carney with the problem of having to raise interest rates, or else change his stated forward guidance, to avoid doing so. In fact, this is the least of Carney's problems. The fact is that in the second half of 2014, he will face economic conditions that will present him with a serious dilemma.

Long before Carney had been presented with the problem of UK unemployment falling to his 7% threshold two years before he expected, economists had puzzled over the fact that whilst UK output had been falling or growing only slowly, the unemployment rate had not increased significantly. The answer to this conundrum was, in fact, quite simple – low and falling productivity. From the 1980's onwards Thatcher and her heirs had attempted to build a low wage economy. It was consistent with the small business mentality that to make bigger profits you need lower wages. But, as Adam Smith had pointed out 200 years earlier, wherever wages are low, the price of labour is dear, because low wages discourage innovation, which raises productivity, it encourages capital to move into those types of production that can most take advantage of the low wages, and they are the low value, low productivity types of activity. The consequence is to build an economy where the value of production is low, productivity is low, and so a large number of workers are employed on low wages.

This would seem to contradict the idea that falling or stagnant output did not lead to bigger rises in unemployment. But, in fact, the two things go together. As output stagnated, employers rather than laying off workers were able to simply cut wages further, so the consequence was that unemployment did not rise on official figures, but underemployment did, and with it productivity dropped even further. The fact that so many workers now are employed on a casual basis, part-time, temporary, or on zero hours contracts facilitates this. To an extent, this should operate in the opposite direction so that when demand and output rises, the first response should be a reduction in this underemployment, but it is always the case that, where productivity is low, in certain industries it will require a large number of additional people to be taken on, even if they are taken on under those same unstable conditions rather than as permanent, stable employees.

But, there is another reason that the unemployment rate did not rise further when output was stagnating. It is that the data shows a large number of people becoming self-employed. In fact, this is something of an illusion. The reality was that these people became self-employed in most part, not because there was a large rise in entrepreneurialism, but because they had given up hope of getting a decent job, and with the conditions for JSA, not to mention the amounts to be had so abysmally low, even the prospect of making money occasionally from being self-employed as a window-cleaner, gardener etc. seemed a better prospect. The incomes of many of these self-employed people is little more than subsistence, and once again the level of productivity is very low.

The reality of the UK economic pick-up is that it takes place in the context of a continuing global economic boom, but one from which the UK is failing to greatly benefit because of the economic model put in place by Thatcher in the 1980's. It ensures that whilst the global boom lifts all boats, the UK economy sinks relative to many of its competitors. The current pick-up has been driven by that boom, which has seen a rise in growth again across the globe, as part of the three year cycle. It has also been driven by a temporary rise in UK consumption. For the last 30 years, there has been an increasing trend towards consumerism. People have been led to see shopping not as something you have to do to meet certain needs for food, clothing and shelter, but as a leisure activity in its own right – retail therapy. Its no wonder that its estimated that in the UK, households throw away 30% of the food they buy.

Such attitudes having been cultivated over so long a period are not easily changed again, and the government and retailers have no desire to change such attitudes. When David Cameron a couple of years ago called on households to reign in their consumer debt, he was quickly told to withdraw his comment, because had they taken his advice the drop in consumption would have further cratered the weak economy. A Government that came into office proclaiming its commitment to cut debt has presided over its expansion, both at the level of the state and of the individual. They have encouraged a further growth of student debt, and now with the Help To Buy scam, they seek to encourage yet more hapless individuals to go into penury to buy grossly over priced property.

And, its on this basis of a further fall in savings and increase in borrowing that the recent rise in consumer spending that led to the rise in GDP was based. A further example of that at a macro level was the sharp rise in the UK trade deficit as it sucked in more purchases from abroad without the corresponding amount of income generation from exports. These are the shaky grounds on which the bounce in the economy and Osborne's crowing are based on.

But, in the second half of this year many of these things will reverse presenting Osborne and Carney with serious problems. Firstly, the borrowing has only been possible because of very low interest rates brought about by high rates and volumes of profits over the last 30 years. But, the rate of profit is falling, and with it the supply of money-capital. A look at the figures for global company profits, shows that they continue to miss estimates that have themselves been massaged downwards. At the same time, several years of avoiding capital expenditure are now hitting the limits. Both firms and states need to engage in large scale investments and capital expenditure. Increased demand for money-capital at a time when the supply of money-capital is declining means higher interest rates. That will be the case whatever Carney and other central banks do as far as printing money. In fact, global interest rates are already rising. The US and UK 10 year Bond Yields have almost doubled in the last year.

Rising interest rates will both hit those states that remain heavily in debt, as well as consumers with huge levels of consumer debt, particular mortgage debt. It will necessarily hit banks to whom a lot of that debt is owed. In Europe, the latest exercise in futility that is the Bank Stress Tests and Asset Quality Review, has already significantly lowered the bar the banks have to jump to show that they are not bankrupt. The requirements of Basle III setting out the amount of Capital the banks are required to hold has also been lowered, because everyone really knows that the banks balance sheets are a complete fiction, based on asset prices that are themselves in the realm of Alice in Wongaland. Even with these much reduced requirements, its estimated that European banks will need to raise tens of billions of additional Euros in addition capital to shore up their books.

Of course, as global interest rates rise, and asset prices begin to fall, central banks may continue to believe that they are Gods, and that they can reduce rates by simply printing more money. They will be wrong. The other day, CNBC's Steve Liesman said that the Monetarists had been proved wrong, and essentially the Keynesians proved right that it is the level of economic activity and not the amount of money printed that determines inflation. In fact, both the Monetarists and the Keynesians are wrong. If the value money or in reality money tokens falls because more is printed, whether this results in inflation depends upon what happens to the velocity of circulation, which in turn as the Keynesians suggest may depend on the level of economic activity. But, the fact of stagflation in the 1970's and early 80's shows that there can be very high levels of inflation alongside low levels of economic activity. If the huge volume of money printing undertaken begins to circulate with a higher velocity, then inflation will increase rapidly, and as it does so, the same kind of inflationary spiral seen in the 1970's will ensue. At the first whiff of such inflation, interest rates will rise sharply, and central banks will be left way behind the curve.

And the reality is that a look at the underlying condition of the UK economy shows that inflation is there. Looking at the trend since 2000, UK inflation is moving higher towards 4% . For much of the last few years it has been way above the BoE target of 2%. The current fall in inflation like the low levels in the Eurozone is due to an actual tightening of money policy, brought about by the rise in the pound and Euro against the dollar, which has significantly reduced import prices for things like energy, whilst acting as downward pressure on internal producers in order to compete with imports. As the dollar is likely to strengthen over the next year, as its economy rebounds these effects will reverse, pushing inflation higher, and possibly rapidly.

Some of the rise in UK GDP may have arisen from the effects of the Help to Buy scam, which the government brought forward by 3 months to September last year, because it was obvious that its previous money drugs were no longer working on the UK's frothy property market. But, the current drugs seem not to be working either. There seems to have been no massive rise in property transactions in the last few months. Of the 6,000 applications under HtB, only 750 were translated into actual transactions, probably because the potential borrowers did not meet the new requirements on being able to meet monthly repayments at slightly higher interest rates. In fact, according to Rightmove, even asking prices for houses fell in December by around 1.9% month on month, and RICS have recently reported that an increased proportion of their members have become negative on property prices.

On top of all this, the three year cycle will turn down in the second half of this year. The global economy will continue to grow strongly, but any slow down in that growth will affect the underlying weakness of the UK economy, particularly in the context of rising global interest rates. By the second half of this near, the UK economy will be flat lining again. Carney will be under pressure from the government to print more money, but with inflation rising, and global interest rates rising the pressure from the real economy will be for him to raise interest rates, or face runaway inflation and the vengeance of the Bond Vigilantes.